More Capacity Issues on the Horizon

More Capacity Issues on the Horizon

More Capacity Issues on the Horizon

Last year, ocean shipping companies experienced a significant imbalance in supply and demand. The resulting capacity issues were tough on everyone. As things balance out moving on into the New Year, companies are thankful, yet cautiously optimistic about the future. They have been bringing ships out of storage for use, but do not intend on bringing out more than is necessary.

Ocean shipping companies feel confident that they have been fairly accurate in their calculations of how many ships will be needed in 2011 and expect to have more than is necessary to handle the demand. However, they do realize that problems could arise because of container shortages that are still plaguing the industry.

Companies that produce containers are gun shy after witnessing a very slow recovery over the last two years. They want to be careful about producing too many containers. Container productions were stopped completely in many companies. A few are back up and running, but cannot produce containers fast enough to keep up with the projected demand for 2011. They are charging almost double what they did, per container, only three years ago.

Shippers are expecting that delicate balance of supply and demand to shift, once again, by 2012. Container supply will surely decline because ocean freight companies and container manufacturers are just as timid about inventory as their customers. Even predicting the short supply doesn't magically produce the money that is needed to prepare for the inevitable.

Matthew Rose, Chairman/President/CEO of BNSF Railway spoke at a recent Transcomp/Intermodal Expo meeting and warned that, "It won't be long, if we get any kind of good economy, until we're back where we were in 2006, with chronic shortages of truck and rail capacity."

Some worry that ocean shipping companies will, once again, order more ships than the demand can keep up with. This has historically resulted in rate wars. However, ocean freight businesses have more flexibility than they used to and are more than willing to sideline freight carriers if they're not needed.

Many of the larger ocean shipping companies have ordered many ships, months ago, after being surprised by the demand spikes of last winter. Ships can take more than a year to build and banks are being very selective about who they loan money to. Many companies may not be able to finance enough ships to get them through next year. However, many ocean freight carriers have prepared and have many ships waiting for the next demand.

Peter Shaerf of AMA Capital says that, "Demand is forecast to grow 9 to 10 percent a year, maybe more, but the capacity will grow even more. I don't think we're heading for depression again. It's not enough to depress rates downward."

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